Its white, gloopy texture was supposed to hold the secret of eternal youth: a fermented milk product used in luxury French beauty products prized by wealthy Parisians. But instead it was the key ingredient in what appears to be one of Latin America's biggest pyramid scheme cons: the case of the "magic cheese".

A French judge will fly to Chile next week to register lawsuits from thousands of villagers left destitute after Gilberte Van Erpe, a French businesswoman, allegedly persuaded them to pay large sums for kits to make "magic cheese", promising big returns when French cosmetic firms bought the product to use in age-defying creams and moisturisers.

Van Erpe, 66, known as "Madame Gil", travelled around Chile giving convincing presentations that persuaded mainly women and poor, unemployed villagers to join a fail-proof scheme working from home. For around €300 (£282), she sold kits containing flasks, filters and a bag of a powder called "Yo Flex". When two litres of milk was added to the powder, it would ferment and produce small pats of cheese which had to be matured for nine days. Van Erpe would then buy back the finished "magic cheese" for French cosmetic companies to make face creams and shampoos. She promised to double investments in four months.

At first the villagers received cheques with the promised sums, inspiring them to invest more. Many incurred debts or sold cattle or cars to pump vast amounts into the scheme. Word spread of its success. Those who got friends to join were promised gifts and rewards.

Often whole families joined the scheme. Some quit their jobs to make the cheese full-time.

In Coltauco, 75 miles south of the capital, Santiago, around 600 families joined the scheme, including a teacher and the owner of an inn. Van Erpe reportedly told one woman there that Michael Jackson used the cheese to whiten his skin. But the bogus kits and powder were in fact worth only €3. Soon the money promised from Van Erpe stopped coming. Later a Chilean TV crew found several tonnes of the rotting cheese in a Chilean warehouse.

Two of Van Erpe's Chilean accomplices were arrested, convicted and jailed in 2006. Their Chile-registered company, Fermex, had conducted the suspected fraud. But Van Erpe fled to France before Chilean police could reach her. She was arrested in Nice last year and is being held in prison, accused of fraud and money laundering.

The alleged scam, worth at least €14.6m, is thought to have affected more than 6,000 Chileans between 2004 and 2006. Van Erpe is accused of running the same con in Peru in 2003, where she is believed to have swindled more than 20,000 people. She was convicted for similar fraudulent activity in Belgium in the 1980s but then left for Latin America.

"Con artists tend to have big imaginations and they tend to continue the same behaviour throughout their life," said Jacques Boedels, the Paris lawyer for more than 1,000 Chileans in the case.

"As with all the really big scams, it was poor people from villages who were affected. She had a certain allure, she was very charismatic, she spoke good Spanish and she was charming.

"She brought people together around the scheme. There was a feeling that they were not just buying the product but buying into a social network. Most of the people who were swindled were poor people without work ... now they want their money back and we are trying to find out where the millions are."

He said a scam along the lines of the "magic cheese" had first been seen in Johannesburg in the 1970s, when people were persuaded to buy powder to make a valuable fermented ingredient that could then be sold on.

Isabelle Montagne, a spokeswoman for the public prosecutor's office in Paris, said: "We call it 'the case of the magic cheese'. She swindled people, she abused their trust to make them believe that she could commercialise that material."

False profits

Pyramid schemes seduce new recruitswith the promise of high returns, but their success lasts only as long as membership grows exponentially. Individuals pay money to those above them in the hierarchy in the expectation that future recruits pay them. Once recruitment falls, the chain collapses. This was illustrated in Albania in 1997, when the value of the schemes amounted to almost half the country's GDP. The ensuing implosion prompted a government collapse, and a virtual civil war in which hundreds died. Last year thousands of Colombians were similarly seduced by a network offering returns of up to 150% a month. The scheme collapsed after a year and losses were estimated at more than $250m. The internet has given scammers further opportunity: a Chinese scheme uncovered in 2007 involved up to 170,000 people. Some schemes are more exotic. One Chinese scheme required investors to to buy three boxes of ants, supposedly to be farmed for health products.